I’m Going To Disagree Somewhat With Ryan Heck’s ITEP Post…

…which, at least among the political insiders around the state seems to be the big-ticket item so far this week among the offerings here at The Hayride. In case you missed it Monday, Heck – who’s the proprietor of Cajun Ready Mix Concrete and a former Baton Rouge Metro Councilman – took a poke at Louisiana’s Industrial Tax Exemption Program, or ITEP, from a conservative perspective.

And that has occasioned a great tempest in our little teapot.

We’re told Greg Bowser, the president of the Louisiana Chemical Association, is almost ready to put a contract out on Heck. Yesterday Heck told us that while he doesn’t regret what he wrote, he’s also a little sad so many folks disliked it.

On the other hand, in an e-mail blast yesterday the left-wing Together Baton Rouge, a chapter of the Together Louisiana cabal which has been conducting a jihad against the ITEP program everywhere in the state, lauded Heck’s post…

One of the strongest pieces to date on the industrial tax exemption issue came out today from what might be considered an unlikely source.

Republican former Metro Council member Ryan Heck, publishing in the Hayride, has made the conservative argument for ITEP reform. Check it out here:

Please consider sharing it and/or forwarding it to others who should read it (especially elected officials).

We’re going to say it’s never good when Together Louisiana likes something which appears here at The Hayride.

But here’s the thing – nothing Heck said in his post is incorrect. He’s right about ITEP. It’s a bad solution to economic development in Louisiana. ITEP is a vehicle for politicians and bureaucrats to craft giveaways to big companies that other companies don’t get access to. You could say it’s a corporate welfare plan, and you wouldn’t be wrong.

And further, Heck’s point – which will undoubtedly be lost on the Together Louisiana crowd – that the people who are really injured by ITEP aren’t the local school boards and courthouse mobs who Together Louisiana would demand to be lavished with fresh lucre from the government treasury but rather the taxpayers who should see property tax millages reduced. If ExxonMobil, let’s say, gets hit with $10 million in property tax increases because they lose an ITEP exemption, that shouldn’t mean $10 million in tax revenue to East Baton Rouge. It should mean the rest of the tax base gets $10 million in savings from an adjusted millage.

We’re going to disagree with him on one thing he said, though, which is that so long as there’s still a Mississippi River with its mouth nearby, there will be people trying to refine oil in Louisiana.

That’s not true as a matter of concrete fact, and it’s absolutely not true as a matter of degree.

Here’s the plain truth of the petrochemical industry as it affects Louisiana. Oil refineries and other chemical plants are owned by large companies which operate several such facilities in various locales. Let’s say we’re talking about ExxonMobil, and they might have a couple of refineries in Louisiana and 10 more in Texas.

And each of these companies will have some percentage of capacity at their refineries they’ll shoot for in daily operations. It’s never 100 percent – running a plant at full capacity means equipment and facilities wear down faster, and they’ll need to shut down for maintenance and turnarounds more often, and so forth. Let’s say some company in question shoots for a 75 percent operational capacity at their oil refineries.

You start hammering these people with tax increases, whether by eliminating an exemption under ITEP or hitting them for inventory taxes they don’t have to pay in another state, or by popping them with a corporate income tax hike, or whatever, and they’ll run the numbers and decide the oil they refine in Louisiana isn’t as profitable as the oil they refine in Texas.

So maybe their plant in Louisiana doesn’t operate at 75 percent anymore. Maybe it operates at 60 percent, and the volume of refined product they turn out gets made up for by running their three Texas refineries at 80 percent.

What does that mean? Well, it means employees in Louisiana get laid off. And because there’s less capacity used in Louisiana, there’s less wear and tear on the equipment and fixtures, so there’s less regularity in the turnaround and maintenance projects at that plant – which means less work for the engineering firms and industrial contractors who service the plant. And because they’re using more capacity in Texas, the jobs and the capital spend on turnarounds and maintenance there increase. Not to mention the company then decides what they ought to do is increase the capacity of their Texas facilities, so there goes a half-billion dollars in capital investment to Baytown, or Corpus Christi, which at one point might have gone to Chalmette or Baton Rouge.

That’s how this works. Again – it’s a bad solution, but it’s a solution.

And the problem isn’t ITEP. The problem is Louisiana’s crappy tax code, which on its face is not competitive with the Texases, Floridas, Tennessees and the like. Not only do we tax income here, which Texas, Tennessee and Florida do not, but we have a ridiculous inventory tax nobody else has. And because of our $75,000 homestead exemption on property taxes business pays 80 percent of the property tax burden in Louisiana, which also makes us special – and not in a good way.

People think ITEP and some of the other “corporate welfare giveaways” out there are the product of some cozy meetings held over cigars and cognac between lobbyists and politicians at Ruth’s Chris Steak House. That’s an intellectually lazy, if facile, assumption about how this works. The fact is, these tax exemptions the Left crows about so much are Band-Aids on gunshot wounds, put in place over the years in an attempt to stop jobs and capital from hemorrhaging to Texas and Florida and other states with far better tax codes for economic development.

Nobody has ever had the vision and the stones to junk Louisiana’s terrible tax code and start over with something which is simple, fair and competitive with our most successful neighbors, largely because to do that would mean reorienting the poisonous relationship between state and local governments here and more importantly dramatically reducing the size and scope of government in Louisiana in total – at least at the beginning. And because that’s too ambitious a project for Louisiana’s governors and legislators to have taken on over the years, tinkering at the edges with workarounds like ITEP is the best we can do.

In other words, dumping ITEP like the Together Louisiana crowd wants without a full re-boot of taxation in this state which looks a lot more like Texas or Florida will only hurt the state’s economy. ExxonMobil has 15,000 employees in the Baton Rouge area; do something to make them decide to move production to Texas and this city becomes a ghost town faster than you can say Sharon Weston Broome.

We’re hoping people remember that. Especially since the value of ITEP in site selection calculations by large industrial players is already virtually nil after Gov. John Bel Edwards’ regrettable decision to localize the program and wipe out any certainty in what it would offer – and concomitantly Louisiana’s industrial construction boom is coming to a close as fewer projects are in the pipeline. We’re not competitive with our neighbors anymore.

And by the way, Heck knows all of this. He could easily have included it in his post, but he was trying to keep to a tight subject. But for the fact the Together Louisiana crowd wants to convert him into a Useful Idiot for their cause, we wouldn’t be critical of a narrow discussion of ITEP’s failings without including the above as context.

Except that Texas grew at 6 percent in the second quarter. And 4.2 percent isn’t competitive with six percent. It’s somewhat competitive with Florida’s 4.4 percent and Arkansas’ 4.3 percent, but it’s not on the upside of those neighbors. Yes, we did beat Mississippi’s 3.4 percent, Tennessee’s 3.6 percent, Alabama’s 3.8 percent and Georgia’s 3.9 percent. But Louisiana hasn’t consistently beaten any of those states, and we won’t – not until efforts are made to make this place competitive.

And killing ITEP before those efforts are made isn’t going to fix anything.

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